Friday, January 29, 2010

THE ECONOMIST ON BIG GOVERNMENT.

All week long I've been wanting to do a small post regarding an article regular reader Mark formerly from Colorado (and before that from California) linked to in the comments section. Well, it's half past midnight here, it's snowing, my latest Koontz book (The Darkest Evening Of The Year) is out, lovemaking Demand and Supply Economics was yesterday, and tomorrow night is Saturday Music Night so if there's got to be a time to do that post it's now.

Would it be asked too much - providing you have time, of course - to read the article first? It's from The Economist and it deals with the ever growing role of the state. I do not agree with everything, and I have my issues with The Economist (they backed Obama for God's sake, which makes me smarter than them) but all in all it's a good read.

When I still have your attention we could walk quickly back over it, and I got a few quick points to make. Your remarks are welcome. Here goes:

"...IN THE aftermath of the Senate election in Massachusetts, the focus of attention is inevitably on what it means for Barack Obama. The impact on the Democratic president of the loss of the late Ted Kennedy’s seat to the Republicans will, no doubt, be significant (see article). Yet the result could be remembered as a message more profound than the disparate mutterings of a grumpy electorate that has lost faith in its leader—as a growl of hostility to the rising power of the state. America’s most vibrant political force at the moment is the anti-tax tea-party movement. Even in leftish Massachusetts people are worried that Mr Obama’s spending splurge, notably his still-unpassed health-care bill, will send the deficit soaring."

I tend to agree. I must say that I was actually flabbergasted at the Tea Party phenomenon, the motivation of which seems to be a genuinely intellectual one, a deliberate rejection of too much state power. Why do I use the word intellectual? Because , judging by the boards and slogans carried, the mere emergence of the tea parties nationwide was an ideological mass statement, and something ideological is in se intellectual. When people take to the streets in Europe, they do so either for very emotional reasons (e.g. they hold pathetic silent marches to condemn this or that heinous crime committed against children) or they do it for jobs, wages and pensions, in other words for simple basic things. There's of course nothing wrong with that, but in essence it's something on the intellectual level of a toddler: me hungry, must have food. How one achieves what they want, whether it's safe jobs, raised wages, or secure pensions, Europeans don't bother about. And they wouldn't understand it either. Now, you can argue that ultimately the Tea Partiers also want those same things, and that's only normal. But there's a reasoning behind their demands: they send the message they want job security and decent health care but NOT with more state. They not only demand something, they ask it be not done in this or that particular way.

I must say I was very, very impressed by this outburst of concerned, intellectually committed citizenship. Here is a people that recognizes bullshit when it smells it. Not so in Europe, where, oh irony! far too many people [not a majority, thank God] call Americans dumb!

The immediate reason for the rise of the state is the financial crisis. Governments have spent trillions propping up banks and staving off depression. In some countries they now play a large role in the financial sector; and thanks to bail-outs, stimulus and recession, the proportion of GDP made up by state spending and public deficits has rocketed. But the rise of Leviathan is a much longer and broader story (see article). Long before AIG and Northern Rock ended up in state custody, government had been growing rapidly. That was especially true in Britain and America, the two countries in which “the end of big government” had been declared in the 1990s. George Bush pushed up spending more than any president since Lyndon Johnson. Britain’s initially frugal Labour government went on a splurge: the state’s share of GDP has risen from 37% in 2000 to 48% in 2008 to 52% now. In swathes of northern Britain the state now accounts for a bigger share of the economy than it did in communist countries in the old eastern bloc.

Apart from saying again that I tend to agree, I have little to add. The statement about Bush may or may not be true. If a reader can come up with material backing that claim up, that would be very appreciated.

"Demography is set to push state spending up further. Ageing populations will consume ever more public health care and ever bigger pensions. Unless somebody takes an axe to them, entitlements will consume a fifth of America’s GDP in 15 years, compared with 9% now."

Again, a correct assessment. Paradoxically, democracies are at greater risk of becoming unmanageable because there is a very real danger that simply because it has become the biggest voting bloc, pensioners will find themselves in a position, in the foreseeable future, where they might veto any measure the state deems necessary to survive financially. It's a Catch 22 situation. Put in simple terms, a state might be forced to contemplate cutting pensions to be able to keep working the state machinery, including its many and various responsibilities that are not directly related to the elderly (education e.g.). But the Grey Panthers might, twenty years from now, be in a position to block such a move. The end result will of course be that the state will head for financial ruin, after which it will not be able to ... pay pensions at all. It's a conundrum, and one that can possibly only be avoided by adapting different pension systems, e.g. the Pinera system born in Pinochet's Chile, and/or spurring people to take more care of themselves with fiscally attractive pension saving schemes.

"Rising government spending is not the only manifestation of growing state power. The spread of regulation is another. Conservatives tend to blame the growing thicket of rules on unwanted supranational bodies, such as the European Union, and on the ever growing industry of public-sector busybodies who supervise matters like diversity and health and safety. They have a point. But voters, including right-wing ones, often demand more state intrusion: witness the “wars” on terror and drugs, or the spread of CCTV cameras."

Okay for the CCTV cameras, which are an intrusion in our private lives straight out of 1984. Not okay for the War On Terror or the War On Drugs. A state should, and must, have the monopoly for the use of violence. When the state is attacked militarily, it must respond in force. Defeating the enemy is the prime objective. Winning World War II placed the US in a budgetary nightmare of unfathomable proportions. But in a losing situation, I assume that few would have consoled themselves by arguing that at least they had adhered to a sound principle like staying out of the red.

"A further danger consists in equating “smaller” with “better”. As the horrors in Haiti demonstrate, countries need a state of a certain size to work at all; and more government can be good."

Agree. A well-functioning state IS a necessity. If that implies a relatively impressive size, so be it. However sympathetic I might be, intellectually, vis-à-vis libertarianism, I often consider it as a concept that's as outworldish as communism. I do not believe in a skeleton state. Sanitary conditions in seventeenth century London only improved when the town authorities levied taxes, giving them the financial means to process human waste in a hygienic and healthy way. And as appalling as Saddam Hussein's state was, its dissolution in 2003 led to an unforeseen chaos. In my own country, the state has created financial backup organizations that have effectively helped key industries to grow. A state is not inefficient per se. There's got to be a state of a certain size. What size? I don't know. You might want to study Dick Armey's findings.

"In these circumstances, hard rules make little sense. But prejudices are still useful—and this newspaper’s prejudice is to look for ways to make the state smaller. That is partly for philosophical reasons: we prefer to give power to individuals, rather than to governments. But pragmatism also comes into it: there is so much pressure on the state to grow (bureaucrats building empires, politicians buying votes, public-sector workers voting for governments that promise bigger budgets for the public sector) that merely limiting the state to its current size means finding cuts."

What else can I say than that I agree?

"And cuts can be found. In the corporate world, slimming a workforce by a tenth is standard fare. There’s no reason why governments should not do that too, when it’s needed. Sweden and Canada managed it, and remained pleasant countries with effective public services. Public-sector pay can be cut, given how secure jobs are: in both America and Britain public-sector workers are on average now paid more than private-sector ones. Public-sector pensions are far too generous, in comparison with shrunken private-sector ones. Entitlements can be cut back, most obviously by raising pensionable ages. And the world might well be a greener, more prosperous place if the West’s various agricultural departments disappeared."